In This Article:
Embecta Corp. (NASDAQ:EMBC) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Embecta's shares before the 25th of May in order to receive the dividend, which the company will pay on the 13th of June.
The company's next dividend payment will be US$0.15 per share, on the back of last year when the company paid a total of US$0.60 to shareholders. Based on the last year's worth of payments, Embecta stock has a trailing yield of around 2.2% on the current share price of $27.05. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Embecta can afford its dividend, and if the dividend could grow.
See our latest analysis for Embecta
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Embecta paying out a modest 27% of its earnings. A useful secondary check can be to evaluate whether Embecta generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 23% of its cash flow last year.
It's positive to see that Embecta's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Embecta's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 75% a year over the past three years.
Given that Embecta has only been paying a dividend for a year, there's not much of a past history to draw insight from.
The Bottom Line
Should investors buy Embecta for the upcoming dividend? Embecta has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall, it's hard to get excited about Embecta from a dividend perspective.